Everyone talk about the importance of superannuation a lot. It is a critical part of making sure you are financially prepared for retirement. But there is so much more to it than just saving for the future… there are a lot of benefits that you can access if you are with the right fund and structure your super effectively. You may not know about some of these benefits… but they can definitely be helpful for you now and into the years to come.
Reduce your tax
Salary sacrifice can be a great way to help lower the amount of income tax you pay. If you can set up a salary sacrifice agreement with your employer, your contribution will attract the low 15% super tax rate… rather than your individual tax rate that is based on your salary. If you can’t arrange a salary sacrifice, then you can still make your own personal contributions and claim a tax deduction… but it’s important that you get your paperwork in order and that you keep track of the contribution cap, because if you exceed it you might have to pay extra tax.
You can also benefit from a lower tax rate on your investment earnings. If you had an investment portfolio outside super, your returns attract tax in line with your marginal tax rate. Investing within super means any asset income is taxed at a maximum of 15% but could be as low as zero.
Pay less for insurance
Insurance is another element within super that can offer you excellent benefits. Depending on your fund provider, you often find that insurance premiums are lower than those outside the super system.
This is due to the sheer negotiating power of the super fund. They can purchase policies in bulk and receive significant group discounts. Holding your insurance in your super can also help your general day to day budget. The premium is simply deducted from your super account rather than you having to find the money when the policy is up for renewal.
Control who receives your money
Many people don’t know that their Will does not cover their superannuation. It does not form part of your estate, so it’s critical that you use a binding death benefit nomination to make sure your money goes to the intended person when you die.
A binding beneficiary nomination requires official witnessing and remains valid for three years.
Bankruptcy can be devastating, but as long as your retirement savings remain in a regulated super fund, your money will most likely be protected from your creditors. This is particularly important for small business owners and professionals.
We must note that any superannuation payments received before bankruptcy are not covered by this protection and those funds form part of the estate.
Government contributions Depending on your level of income, your non-concessional personal contributions could receive a boost from the government in the co-contribution scheme. In order to receive the co-contribution, your super fund must have your tax file number on file, and tax free payment is made directly into your account. The ATO states:
“If you’re a low or middle-income earner and make personal (after-tax) contributions to your super fund, the government may also make a contribution (called a co-contribution) up to a maximum amount of $500.”
In addition to the co-contribution, there is also the Low Income Superannuation Tax Offset (LISTO). Again, the ATO states:
“The low income super tax offset (LISTO) is a government superannuation payment of up to $500 to help low-income earners save for retirement. If you earn $37,000 or less a year, you may be eligible to receive a LISTO payment. This is usually paid directly into your super fund.”
If you have a lower income earning spouse, you might also be eligible for tax offsets if you make super contributions on behalf of your spouse.
Tax-free in retirement
When you retire… or after you turn 60, it’s most likely that you will have tax-free access to your super. This is regardless of whether you start a pension income stream or withdraw a lump sum amount. An account-based pension can provide you with regular tax-free payments, and investment earnings that are supporting your retirement phase pension are also tax-free.
Talk to a professional
Superannuation might not be the most exciting topic… but it really is one of the most critical aspects of your overall finances. And a qualified financial adviser can assess your situation and provide you with useful information to help you navigate your options and to choose the ones that will serve your individual plans and financial goals.
To ensure you are harnessing the significant benefits super has to offer, please contact our team or request a free consultation today.